Product life cycle, innovation capability, and the choice for organic and inorganic growth

We study how innovation capability and life-cycle stages at IPO shape post-listing growth strategies and patenting outcomes. Using a sample of 3,941 US IPO firms from 1997–2014 and data on patents, acquisitions, strategic alliances, joint ventures, and product life-cycle stages, we document strong persistence in innovation capability. Firms with patents at IPO are much more likely to continue innovating, while non-innovative firms rarely become innovators. Innovation capability is also strongly associated with post-IPO growth choices. Firms with patents at IPO are more likely to pursue inorganic growth, especially strategic alliances, and to become serial inorganic growers, whereas non-innovative firms are more likely to remain organic. Although inorganic growth is positively associated with patenting in cross section, within-firm analyses show little evidence that innovation rises after the first inorganic event. Instead, the positive association largely reflects selection. Heterogeneity analyses show that one-off inorganic events are associated with weaker patenting, while repeated inorganic activity, especially when firms combine acquisitions and alliances, is linked to stronger innovation outcomes.